Computation of Long Term Capital Gain/Loss: Profits extrapolated from the selling of capital assets are referred to as capital gains. Long-term capital gains and short-term capital gains are the two primary forms of capital profits. Long-term capital assets are those maintained for 36 months at least.
Long-term Capital Gains Tax Computation Formula
The following equation should be implemented to evaluate the long capital gains tax payable:
Long-term capital gain = total consideration received or accrued – (indexed cost of acquisition + indexed cost of improvement + cost of transfer), where:
Indexed cost of acquisition = price of acquisition * cost inflation index of the year of transfer or cost inflation index of the year of acquisition.
Indexed cost of improvement = price of improvement * cost inflation index of the year of transfer or cost inflation index of the improvement year.
When discussing long-term capital gains, the Cost Inflation Index (CII) comes into the equation. This index is clearly predetermined and announced by the government each and every year.
Note: Securities Transaction Tax (STT) is not tax-deductible as an expenditure for assessing capital gains, whether short or long term.